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July 30, 2014

New ETF Based on Workplace Equality Index

Fifteen years ago, Denver Investments in Denver, Colorado, received a large sum of money from the Minnesota-based Kevin J. Mossier foundation with the strict mandate that it should be invested solely in companies that both honored and adhered to employment equality, in line with what the late Mossier – a visionary gay entrepreneur, most known for founding the highly successful gay travel company RSVP Vacations – would have wanted.

At that time, though, the corporate sector was a totally different place than it is today.

There was no corporate equality index, says John Roberts, partner at Denver Investments. The National Gay and Lesbian Chamber of Commerce had not even been registered, so abiding by the foundation’s mandate meant “that we had to just call companies up ourselves and ask them if they practiced workplace equality.”

But that bottom-up process allowed Denver Investments to put together a list of companies that practiced true employment equality as it pertained to color, gender and sexual orientation, and based on a set of parameters drawn up over time by the investment firm. Through the years, the universe of companies has grown, so that today, when workplace equality is more or less a given (earlier this month, President Barack Obama signed an executive order that bars discrimination against LGBT federal employees), Denver Investment’s list morphed into that which didn’t exist 15 years ago: The Workplace Equality Index.

And now, there's an ETF based on that index, the Workplace Equality Portfolio (EQLT).

For inclusion in the index, companies must support LGBT equality and their Equal Employment Opportunity (EEO) statement must not only prohibit discrimination based on sexual orientation and gender identity, but should also offer health benefits and other corporate benefits to same-sex partners as they do to spouses of other employees.

But Denver Investments also screens companies for other factors such as bankruptcy and reorganization, and, Roberts says, for their investability, “because as money managers, we realize there’s a very important trading element that has to figure, so we screen companies for liquidity and market capitalization and a host of other characteristics as well.”

That approach proved to be so successful that Denver Investments launched the EQLT ETF based on the index earlier this year.

“We realized that the returns for the portfolios we were managing [based on the index] were better than for a lot of other portfolios and it got us thinking that there has to be something behind this, that there is something driving the returns,” Roberts says.

That something, he believes, can’t be measured or quantified through conventional financial metrics, but “after 15 years we can clearly see that companies that embrace equality, that are forward thinking and progressive and willing to treat their LGBT employees with dignity and respect, are much more productive, and that that means that the returns to their shareholders and stakeholders are much more competitive,” Roberts says. “We’ve seen that 80% of the companies in our index are beating the peers in their sectors by a significant two digit number, so for us, there’s a real business case for a company to practice employee equality.”

The Workplace Equality Index currently has 164 companies, many of them large, household names such as Apple and Microsoft, Wells Fargo and Corning, representing a large swath of industries from consumer staples and consumer discretionary to materials and telecom companies.

As attitudes and mindsets continue to change, and the LGBT community gains greater acceptance and standing, Roberts expects that more companies will meet Denver Investments’ parameters. The increased adoption of workplace equality and fairness willalso improve their business performance, which will in turn improve outcomes for anyone who deems employment equality an important investment consideration.

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